The Trader Daily

For the second time in as many weeks, the bears tried to sell the SPDR S&P 500 Trust (SPY) and SPDRDow Jones Industrial Average (DIA) down through their 50-day simple moving averages (SMA). The bulls, however, thwarted their efforts by soaking up any and all supply that came to market. The iShares Russell 2000 (IWM) and Powershares QQQ Trust (QQQ) weren't so lucky. The IWM has now closed beneath its 200-day SMA for a second day in a row. And the QQQ, while still comfortably above its 200-day SMA, has lost its uptrend line stretching back to it last swing low in mid-April.

The bottom line is that as long as the utility, consumer staples, REIT and energy sectors continue to power higher, I see no reason to aggressively question the persistent bid underneath the SPY and DIA. I may not like or understand the market's strength, but I see no value in standing around aimlessly arguing with it.

I continued to believe the IWM and QQQ should be viewed in a generally bearish light until a floor is found in the now-decimated momentum and high-growth stocks. Until a bottom is found in stocks like FireEye (FEYE), Twitter (TWTR) and Tableau Software (DATA), I see no reasons for active traders to consider buying the IWM or QQQ for anything more than a short-term scalp.

I want to switch gears now and highlight a negative divergence that is beginning to show up on the daily chart of the Utilities Select Sector SPDR Fund (XLU). We last discussed the XLU a couple weeks ago and, as some of you may recall, I mentioned my desire to stalk a negative divergence in the daily relative strength index (RSI) while the ETF registered a new swing high in price.

As you can see on the chart below, while the XLU is a whisker away from making new swing highs, the RSI is still a long ways from making a new high (in momentum). To be clear, this sort of setup is still several days away from potentially triggering. We need to see the XLU close at new swing highs, the RSI fail to make a swing high and then price (of the XLU) turn lower. This would be our indication to stalk the index for a short. Those wanting a more obvious trigger could then look for a close under the 20-day exponential moving average (EMA) to act as a trade trigger. A new swing high would offer a logical and unemotional stop loss level.

Just because I'm interested in stalking a short in the XLU on a daily timeframe, don't infer that to mean I'm unable to find value in the sector on an even longer timeframe. Take a look at the bullish action on Entergy's (ETR) monthly chart. Rather than chasing the current price momentum, I'd suggest jotting down the ticker and checking the daily or weekly chart every week or so for a buying opportunity closer to $70.

Energy has been one of the top performing sectors over the past few months, and after trading horribly since mid-November of last year, Transocean (RIG) finally appears ready to join the party. You can review my notes on the chart below, but the bottom line is I am looking for any break (and session close) above $43.50 to propel this stock above $44.25 and on toward the 200-day simple moving average near $46. From a risk management standpoint, I do not want to see this stock lose its 50-day SMA (in black on the chart below).

In preparation for the trading day ahead in the SPY, let's begin by identifying $187.39 as our intraday pivot. All trading above that level encourages buyers to bid prices up toward $188.25, while everything beneath it shines a light on $186.65.

As far as more meaningful range extension is concerned, a shift in value above $188.25 would have me looking for a drive toward $188.75 and $188.05. And as discussed in recent reports, a close above $189.05 puts us back on track for new all-time highs. Failure to hold the line at $189.65 would encourage sellers to hammer the SPY back down toward $186.05. And unlike our successful test of that level during Wednesday's session, my guess is we'll slice straight through it if we test it again on Thursday.